Downsizing – The folly of the traditional approaches

Traditional downsizing approaches suffer from several common pitfalls:

Failing to factor in relative individual contributions: Blanket cuts often seem the fairest and simplest way to manage headcount reductions, but they often cut too deeply in hard-to-fill skillsets and too little in areas where skills are abundant. A better approach takes econometric and external talent pool data into account so leaders can plan based on what resources are likely to remain scarce or in high demand.

Cutting support without addressing underlying workload: Knee-jerk reductions that result in short-term gains can be hard to sustain because they don’t address the root-level inefficiencies that create them. Support staff are often among the first to see layoffs, but thinning administrative ranks without first reassigning or restructuring those duties can force higher-wage, higher-value staff to pick up the slack. That often unintended redistribution reduces the amount of time specialized talent can spend on revenue generating work which can cost the organization more in the long run. In the last downturn, one independent chose to reduce subsurface technician roles, leaving data prep and loading to highly-paid geophysicists. The unintended end result was lower productivity at higher cost—soon after the change, a geophysicist typically spent 90 percent of his or her time preparing and loading data, which had previously been done by a technician at a quarter of the cost. A better approach is to reassign, outsource and automate administrative tasks wherever possible in advance of reductions to improve efficiency and cost performance.

Failing to weed out under-performers: Static performance metrics and incentives, locked into the system from years of rapid growth, have left many oil and gas companies with an outmoded way of gauging and tracking employee performance. That makes it difficult to identify and exit under-performers. Leading companies by contrast regularly prune their base to elevate performance norms and make space for new talent to refresh the organization.

Chosen excerpts by Job Market Monitor. Read the whole story at Adopting a through-cycle approach to talent management | McKinsey & Company.